Skip to main content

LUP Student Papers

LUND UNIVERSITY LIBRARIES

Nominal GDP Targeting in Sweden - A New Keynesian DSGE Model Approach

Nicklasson, Henric LU (2021) NEKP01 20211
Department of Economics
Abstract
Since the end of the Great Moderation, there has been a great surge in studies proposing alternatives to the current dominant monetary policy regime of inflation targeting. One popular such alternative has become NGDP targeting. However, as studies tend to gravitate towards larger economies, an unintended side effect has become a significant degree of homogeneity in regards to the economic setting where the target is evaluated. With the purpose of addressing and highlighting this issue, this study investigates the target in the case of Sweden, a country where no empirical study on the relative merits of NGDP targeting has been done before.

The paper empirically explores the topic of NGDP targeting vis-á-vis other monetary policies... (More)
Since the end of the Great Moderation, there has been a great surge in studies proposing alternatives to the current dominant monetary policy regime of inflation targeting. One popular such alternative has become NGDP targeting. However, as studies tend to gravitate towards larger economies, an unintended side effect has become a significant degree of homogeneity in regards to the economic setting where the target is evaluated. With the purpose of addressing and highlighting this issue, this study investigates the target in the case of Sweden, a country where no empirical study on the relative merits of NGDP targeting has been done before.

The paper empirically explores the topic of NGDP targeting vis-á-vis other monetary policies within a New Keynesian DSGE model. The model is fitted to Sweden via a mix of calibration and Bayesian estimation of the parameters, employing data of the Swedish economy spanning the period 1993:2-2014:4. Evaluation is done in regards to welfare losses, where output gap targeting is found to produce the most desirable outcome followed by an estimated Taylor type rule. The finding of a Taylor type rule to outperform a NGDP target in such a setting goes against much of the current literature. The results thus perhaps suggest a significant degree of heterogeneity in the performance of the target across different economies. As such,the study motivates further investigation into the relative merits of NGDP targeting across a more diverse set of economies. (Less)
Please use this url to cite or link to this publication:
author
Nicklasson, Henric LU
supervisor
organization
course
NEKP01 20211
year
type
H2 - Master's Degree (Two Years)
subject
keywords
NGDP, NGDP Targeting, DSGE, Monetary Policy, Sweden
language
English
id
9064395
date added to LUP
2021-10-14 10:04:27
date last changed
2021-10-14 10:04:27
@misc{9064395,
  abstract     = {{Since the end of the Great Moderation, there has been a great surge in studies proposing alternatives to the current dominant monetary policy regime of inflation targeting. One popular such alternative has become NGDP targeting. However, as studies tend to gravitate towards larger economies, an unintended side effect has become a significant degree of homogeneity in regards to the economic setting where the target is evaluated. With the purpose of addressing and highlighting this issue, this study investigates the target in the case of Sweden, a country where no empirical study on the relative merits of NGDP targeting has been done before.

The paper empirically explores the topic of NGDP targeting vis-á-vis other monetary policies within a New Keynesian DSGE model. The model is fitted to Sweden via a mix of calibration and Bayesian estimation of the parameters, employing data of the Swedish economy spanning the period 1993:2-2014:4. Evaluation is done in regards to welfare losses, where output gap targeting is found to produce the most desirable outcome followed by an estimated Taylor type rule. The finding of a Taylor type rule to outperform a NGDP target in such a setting goes against much of the current literature. The results thus perhaps suggest a significant degree of heterogeneity in the performance of the target across different economies. As such,the study motivates further investigation into the relative merits of NGDP targeting across a more diverse set of economies.}},
  author       = {{Nicklasson, Henric}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Nominal GDP Targeting in Sweden - A New Keynesian DSGE Model Approach}},
  year         = {{2021}},
}